BT Group PLC ADRBT

Morningstar Rating

Stock Research and Analysis

by Allan C. Nichols, CFA

We have been increasingly frustrated by BT's inability to improve margins in its global services division. However, the firm continues to generate solid free cash flow, and after further write-offs we think the worst is over.

BT has attempted to become Read more

Bulls Say

Ofcom, the U.K. telecom regulator, approved BT's plan to operate its wholesale division separately from its retail division without breaking it up in January 2006. Recently, Ofcom has decreased the regulation on BT's consumer business. This reduces the risk to the company's strategy, revenue, and earnings.

BT continues to acquire small companies, adding further capabilities to its managed-services and consulting offerings.

The stock recently traded at all-time lows despite BT being in much better shape than during the telecom crisis.

The information-technology services unit continues to win new contracts. Large contracts won in the fourth fiscal quarter included Syngenta SYT, Camper, and Commerzbank. Read more

Bears Say

The British telecom market is very competitive. For example, more than 200 companies offer DSL service. Virgin Media is the first company able to offer a quadruple play in the U.K., and it has rolled out Internet access service that is at least twice as fast as anything BT can offer on a large scale.

Fixed-line sales are shrinking, and new growth areas are becoming more competitive, which has caused the firm to cut its annual dividend payout by about 60%.

BT's global services division currently isn't earning anything close to its cost of capital and is sucking up valuable management time.

The European telecom regulator is threatening to change telecom regulations across Europe, which could hurt BT's results. Read more

Strategy

BT is trying to defend its position in the phone business while expanding into new areas such as high-speed Internet access and IT services. These offerings can be cannibalistic, but at least BT will Read more

Management

Michael Rake was named chairman in September 2007. He was previously chairman of KPMG and brings significant experience in international business, strategy, and accounting. Ian Livingston became CEO in June 2008. Previously he ran BT's retail division, Read more

Profile

BT Group, formerly known as British Telecom, is the incumbent phone operator and largest supplier of fixed-line phone services in Britain. About 56% of the U.K.'s 26 million Read more

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